Rivals 'must weigh IT challenge' of ABN Amro takeover

How best to integrate IT systems to gain competitive advantage will be a key consideration for the two leading banks vying to buy ABN Amro, analysts said this week.

Leo King
July 17, 2007

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How best to integrate IT systems to gain competitive advantage will be a key consideration for the two leading banks vying to buy ABN Amro, analysts said this week.

With Barclays now facing competition for the Dutch bank from a consortium of rival bidders led by Royal Bank of Scotland, IT commentators said that the outcome of the bidding war would in part be decided by the two banks’ respective assessments of the IT integration challenge posed.

Robert Morgan, chief executive at sourcing advisory firm Morgan Chambers, said the two bidders would likely take very different approaches if successful.

“RBS has a policy of the lowest common denominator when it comes to IT,” he said. “This does not mean they use poor IT but that they prefer not to overspend, so long as the systems work properly.” Morgan said that if RBS succeeded it might aim for cost savings but not look for extra functionality in the short term. He said part of the success of RBS’s integration programme after it bought NatWest in 2000 lay in its decision to retain and integrate only the “essential” parts of Natwest’s IT infrastructure.

But Morgan said Barclays could also make a success of ABN Amro takeover, given the two banks’ “heavy” reliance on outsourcing agreements.

“It’s ability to intergrate could be accelerated by outsourcers, who are there to improve efficiency.” In 2005 ABN Amro announced it was investing £1.2bn in a multi-supplier outsourcing deal with Accenture, IBM, Infosys, Tata Consultancy Services and Patni.

Morgan warned, however, that the terms of that contract could cause short-term problems to Barclays. “There is no possibility for severance of ABN’s contract with IBM, EDS and the other suppliers. These vendors are tied up very closely with a huge responsibility for cutting costs, and there would be large penalties for cutting the contract.”

Chris Skinner, chief executive at financial services think tank Balatro, also said both banks would be treading cautiously since there was “rarely an easy way to integrate IT systems after large financial services firms merge.”

“In general the acquirer tends to displace the systems and jobs of the acquired,” Skinner said. “However, ABN is particularly strong in the field of Euro payments, and the acquirer might choose to keep this expertise and those systems.”

Earlier this week RBS increased the cash element of its €71.1bn (£47.8bn) bid in an aim to outdo Barclays. The latter’s bid stands at €64bn, but Barclays has also said it may consider increasing its own cash component. Both parties have until 23 July to submit final formal offers.